A total of 455 issuers are expected to register VND733 trillion ($31 billion) worth of bonds on the Hanoi Stock Exchange (HNX) within the next three months, according to leading broker Saigon Securities (SSI).
So far, only 19 bond codes issued by Bamboo Capital Group’s construction subsidiary Tracodi, Vietcombank and electric car maker VinFast have registered on the bourse, with a total value of VND9 trillion ($380.3 million), SSI said in its recent report.
Corporate bond issuance slowed in the first quarter of 2023, but showed signs of a recovery in the second quarter.
The total value of private placement corporate bonds in the first six months of 2023 was VND57.3 trillion ($2.42 billion), down 67.8% over the same period last year, while public bond offerings were worth only VND5.5 billion ($323.4 million), down 37.9%.
Real estate enterprises accounted for the highest proportion of issued bonds in the primary market at 57%, followed by banks at 31%.
SSI noted that the July 19 launch of the secondary private placement corporate bond exchange marked a good start for the recovery of the market.
It is expected to help increase market liquidity and transparency by providing investors with an easier and more formal approach to track the yield curve/price movements of bonds, especially those that are unregistered, the broker said.
According to SSI, in an efficient market, transactions between buyers and sellers on the secondary market will determine the trend of corporate bond yields and serve as indicators to identify risks to the financial health of the issuers or macro fluctuations in the market.
The operation of the secondary corporate bond exchange will help recover demand for corporate bonds, first of all from institutional investors with abundant capital and the need to diversify their investment portfolios.
"For individual investors, there are still many things to do to restore their confidence and sentiment. The current interest rate downward trend will partly improve demand for corporate bonds," it said.
Restoring confidence
In order to restore confidence in the corporate bond market, SSI said that in the short term, the government needs to take more solutions to solve existing problems, such as rating corporate bonds based on solvency or issuing decrees and circulars facilitating corporate bond issuances.
"The launch of a solvency-based corporate bond rating system would be a suitable approach to classify issuers by risk and thereby offer different support measures," said SSI.
"To restore bond demand and individual investor confidence, reshaping the market structure and reducing the direct participation rate of individual investors should be considered," it recommended.
Intermediaries including banks, securities companies and bond funds need to comply with higher standards and responsibilities when distributing corporate bonds, it noted.
"In addition, it is necessary to issue more policies and legal documents to improve the legal framework for handling collateral as well as regulations on disclosure of defaults and follow-up measures," according to the broker.
The corporate bond exchange uses a specialized payment system developed by Vietcombank called VCB C-Bond. It enables investors to trade bonds on the HNX almost like normal stocks, but under the T+0 payment mechanism which means that the money or bonds will be immediately credited to investors’ accounts.
There are trading sessions for private placement corporate bonds on the HNX from Monday to Friday each week, excluding public holidays, lasting from 9 a.m. to 11:30 a.m and from 1 p.m. to 2:45 p.m.
The corporate bond market experienced overheated growth in 2020 and 2021 with an issuance value of nearly VND462 trillion ($19.66 billion) and VND658 trillion ($28 billion), respectively, according to the Vietnam Bond Market Association.
However, the market slowed after the mid-2022 arrests of real estate business leaders for bond issuance violations and improper use of mobilized capital. By the end of 2022, the outstanding corporate bond debt was about VND1,200 trillion ($50 billion), equivalent to 12.6% of GDP and 10% of total outstanding credit.
Vietnam has basically built a legal framework to encourage the development of the corporate bond market. However, compared to its potential and other markets in the region, Vietnam's corporate bond market size remains modest, with its balance equivalent to only 13% of GDP, much lower than 56% in Malaysia, 38% in Singapore and 25% in Thailand, according to Finance Minister Ho Duc Phoc.